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Tech Targets: EUR/USD, GBP/USD, AUD/USD, USD/JPY - UOB EUR/USD: Neutral: Bullish only if daily close above 1.1005/10.
We are sticking to view wherein only a daily closing above 1.1005/10 would shift the current neutral EUR outlook to bullish (closing was 1.1000 last Friday).
That said, the undertone for this pair is positive and the odds for a sustained up-move in the coming days are rather high especially if we continue to hold above 1.0900.
GBP/USD: Neutral: Corrective rebound target at 1.4230 met, recovery could extend further to 1.4400.
We highlighted last Thursday (when spot was at 1.4085) that the corrective rebound could extend to 1.4230. This level was exceeded with a high of 1.4249 on Friday. With no sign of weakness just yet, the current recovery could extend further to 1.4400 (1.4300 is a strong resistance).
Only a move back below 1.4050 would indicate that the prevalent upward pressure has eased. Overall, the current movement is reminiscent of the price action in early February where the corrective rebound extended to 1.4672 before topping out.
AUD/USD: Bullish: Next target at 0.7480.
The immediate target at 0.7385 was easily exceeded as AUD surged to a high of 0.7444 on Friday (edging above the strong 0.7440 resistance). While the outlook is still clearly bullish, overbought short-term indicators could lead to a couple of days of consolidation first.
The next objective is at 0.7480 followed by the rather major level of 0.7535.
USD/JPY: Neutral: In a broad 112.50/114.55 range now.
There is no change to the neutral view as USD traded in a range last Friday.
As indicated previously, only a clear break out of the expected 112.50/114.55 would indicate the start of a directional move.
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Here Are The Best 3 Trades For The Dollar Bloc We test the dollar bloc currencies on a host of different measures to benchmark relative value.
We focus on high-frequency data, medium-term valuation, and market positioning for our analysis.
Our results show CAD has been the strongest macro trade thus far in 2016. We look for a recoupling to the macro themes for AUD and NZD in Q2, though.
Our favorite trades from this exercise are long AUD/ NZD and short NZD/CAD, AUD/CAD.
...Our views on the dollar bloc argue for outperformance in CAD compared to NZD and AUD. Our preferred trade is short NZD/CAD so fade any rallies.
Short-term models flag a target range of 0.85 and 0.88, so we still see some room to move lower. Our models also suggest that AUD/NZD could move higher with high-frequency data indicating an immediate target of 1.13.
On the macro side, terms of trade shocks, relative monetary policy, and currency valuation argue for AUD/NZD to move higher over Q2. The apparent risk of this negative NZD view is that the RBNZ underdelivers this week. Markets expect it to keep its powder dry but also to maintain its easing bias. A hawkish surprise could force a squeeze higher in NZD, owing to the net outstanding short positons. Even so, we think any pullback would offer an excellent entry point for new exposure to underweight NZD at the start of Q2.
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EUR/USD: Euro in Spotlight Ahead of ECB Meeting The common European currency will gain most of the attention on Thursday as the European Central Bank (ECB) is expected to step up its policy accommodation to support the economy in an environment of low inflation.
The euro has been trading rather within a tight range this week as traders have been more cautious ahead of the ECB decision, after the blow back in December which hammered the credibility of both the ECB and Draghi and sent the euro jumping more than 400 pips higher against the US dollar.
In the pre-market on Thursday, the euro was seen 0.11% lower at $1.0979.
Markets forecast a 10bp cut in the deposit rate to -0.40% and an increase in the pace of monthly asset purchases, currently running at €60 billion per month.
"Updated macroeconomic projections are expected to include a sharp reduction in the 2016 inflation forecast from 1.0% to 0.5-0.7%, largely on the back of the sharp fall in energy prices," ANZ research note said on Thursday.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY
EUR/USD: Outlook turn bullish but upside likely limited to 1.1245.
The strong overnight rally is accompanied by impulsive momentum and the outlook for EUR in the next 1 to 2 weeks has shifted to bullish from neutral. That said, it is very likely that we have seen a bulk of the move. The current price action is reminiscent of the rally last December where the one day surge to a high of 1.0980 led to a limited extension to 1.1059 (before quickly turning sideways).
Only clear and sustained break above 1.1245 would indicate that a move towards 1.1375 has started. Support is at 1.1090 but only a move below 1.1030 would indicate that temporary top is in place.
GBP/USD: Neutral: Recovery could extend further to 1.4400.
As indicated yesterday, as long as 1.4050 is intact, another attempt higher to test the major 1.4400 resistance cannot be ruled out just yet. GBP dipped to a low of 1.4120 yesterday and the up-move from the low appears to be on track for a move to 1.4400.
At this stage, we not expect a sustained move above this level. Overall, the undertone will remain positive unless there is a move back below 1.4120.
AUD/USD: Bullish: 0.7480 target exceeded, next objective at 0.7535.
The high of 0.7528 held just below the 0.7535 objective. The pull-back from the high is likely a short-term consolidation phase and the probability for a move above 0.7535 in the coming days appear to be quite high.
The next resistance is at 0.7600.
NZD/USD: Neutral: Pull-back likely limited to 0.6545.
We just turned neutral NZD yesterday and there is no change to the view. The current movement is likely part of a corrective pull-back that is limited to 0.6545.
USD/JPY: Neutral: Still neutral, back in a broad 112.00/114.55 range.
We have held a neutral view since the middle of last month and at this stage, there is no change in our outlook. Further choppy can be expected, likely in a broad 112.00/114.00 range.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Change to Neutral: Bullish phase ended, in a broad 1.1120/1.1375 range now.
The break below 1.1200 yesterday was not surprising and indicates that the bullish EUR phase that started on the 11 Mar has ended. While further EUR strength is still expected further out, this is likely only after a period of consolidation.
In other words, the outlook for the next couple weeks is viewed as neutral and we expect this pair to trade within a broad 1.1120/1.1375 range.
GBP/USD: Change to Neutral: Likely in a broad 1.4050/1.4400 range.
The break below the 1.4350 stop-loss resulted in a sharp drop to a low of 1.4191. The up-move that started from the low of 1.4053 last week has topped out at 1.4514, much sooner than expected and short of our 1.4570 target. Despite the sharp drop, we are not convinced that the current weakness is a resumption of the bearish trend in GBP.
The current movement is viewed as part of a broad sideway consolidation range and further choppy can be expected in the next couple of weeks, likely holding between 1.4050 and 1.4400 (bias is for a probe lower towards 1.4050).
AUD/USD: Bullish: Target 0.7740.
There is no change to the current bullish AUD view and we continue to target a move to 0.7740. That said, the current short-term consolidation phase appears incomplete and this pair may trade sideways for another 1 to 2 days more.
Only a clear and clean break above 0.7680 would indicate that the next leg higher has started.
NZD/USD: Neutral: Back into a broad 0.6650/0.6900 consolidation range.
We just shifted to neutral stance yesterday and there is no change to the view. The recent attempt to break higher has failed and NZD has likely moved back into a broad sideway range between 0.6650 and 0.6900.
USD/JPY: Bearish: Bearish for 110.00.
The rebound from the low of 110.65 has been more resilient than expected but as long as 113.00 is intact, another leg lower to 110.00 is still a possibility but we must admit that the odds have diminished and will continue to diminish if the current short-term consolidation were to persist.
Buy USD Dips Vs AUD It appears that rising Fed rate expectations to the benefit of the USD have been lowering investors’ demand for risk assets. With several Fed members confirming this week that two more hikes this year seem reasonable and as markets still under-price such a scenario caution remains warranted. This is especially true as major central banks such as the ECB and BoJ are unlikely to consider additional policy action anytime soon, irrespective of still weak growth conditions.
All of the above suggests too that the USD should be bought on dips versus risk sensitive currencies such as the AUD. The AUD has been benefitting from better commodity price developments and normalizing RBA monetary policy expectations in the last few weeks. However, with the RBA unlikely to signal a less dovish policy stance anytime soon and as a stronger USD may weaken commodities, caution is warranted. We like selling AUD rallies.
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Exploring EUR Dynamics & Targets EURUSD has traded significantly away from interest rate differentials – reason enough to take a deeper dive into what drives the euro. Interest rate differentials define the short-term attractiveness of a currency pair, and since rate differentials are impacted by relative monetary policies, it is the relative cyclical position of economies at least tactically influencing FX rates.
...But what’s been holding the EUR up then? We think two things: first, foreign investors have over the last year decreased FX hedge ratios on EUR-denominated equity investments, putting upward pressure on the common currency. Second, we think there has been diversification of reserves into the EUR over recent months.
While the EU data don’t break down portfolio liabilities by country, the data are provided by Japan’s ministry of finance. These numbers show that earlier this year Asia was buying record amounts of short-term JGBs – suggesting reserve diversification. Given that the largest reserve managers are also underweight EUR reserves, diversification into this direction seems likely too.
Due to these factors, the EUR has been supported higher than fundamentals would suggest, making it more difficult for the ECB to tackle the deflationary threat, in our view. However, such flows are not lasting and once the transitory effect they have on price wanes, the EUR should recouple with yield spreads, we think.
No Long-term EUR Stability. A combination of the absence of meaningful structural reform able to enhance EMU’s growth potential, ECB policy action failing to support EMU’s bank profitability and the lack of EUR weakness suggests EMU edging closer to a Japan-style outcome.
Does this mean the EUR will go the JPY route and strengthen for two decades? We think not. When Japan went into deflation, it was able to support its lifestyle via its income balance generating income from foreign asset holdings and bringing this income back to Japan. JPY strength was a result of income balance related repatriation flows. EMU has no net foreign asset position. It has a foreign liability position instead.
This means once the EMU financial sector has adjusted its balance sheet ratios to regulatory requirements, you will likely see the EUR coming under structural selling pressure again.
*MS targets EUR/USD at 1.06, 1.03, and 1.0 by the end of Q2, Q3, and Q4 respectively.
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Is The USD Top In? Where To Target? Policy announcements from the ECB and the Fed in the last few weeks go some way to support the theory that G20 Central Bank governors came to a tacit agreement at their February Shanghai gathering that policy pronouncements in recent months had not been conducive to financial stability and instead exacerbated the ‘global economic and financial developments’ the FOMC talked of in its March Statement.
To this end and to the extent that Central Banks are able, the theory is that going forward they will attempt to be more coordinated in future policy initiatives and will consider the global economic and financial impact of policy shifts rather than just their own domestic backdrop.
Is this view credible? If it is it could signal a USD top is in, allowing for a period of renewed risk-seeking behaviour that sees the USD fall a little further, only for it to recover some ground ahead of a potential June Fed hike.
Were that to be the case, however, we’d suspect any USD recovery into June and maybe out the other side would be reasonably modest and not sufficient to recapture its highs of January where it peaked after a 25% broad gain, marking multi-year highs against major and EM currencies. The thinking here is if the Fed and others in G20 are genuine about co-operation then there’s an argument for the Fed at least to keep any Fed policy-driven USD gains limited by emphasising the downside risks to the economy. This plays to a gradualist approach to any further tightening to limit risks of a ‘wash, rinse, repeat’ of last August’s and this January’s ructions.Accordingly we make minor adjustments to our G3 USD forecasts to take account of this view. If our language however seems slightly evasive it is because central banks are making a frustrating habit of wrongfooting observers and investors. Whether this is by design or the result of having little clear idea themselves and thus being at the mercy of markets is not clear - we have our suspicions.
Take the Fed: Having raised rates in December against the advice of many, including the IMF and even some insiders, it communicated that the financial market ructions of early 2016 were not borne out by the macroeconomic data. At least that’s what chair Yellen told Congress in February. There’s a strong argument that markets simply dis-regarded Fed hike projections as a non-starter and that this aided sentiment, though Yellen and Fischer were vindicated by the broad market rebound and recovery in oil/commodity prices.
...Notwithstanding ad-hoc comments from Fed members such as Lockhart and Williams, which we are minded to take as unreliable, the risk we see is for stronger US wage rises, forcing the Fed to be more aggressive that it currently envisages; a scenario which could boost the USD further than we currently price. Before that, we prepare for a further stepped decline in the USD of something in the order of 2% to 3% in the broad index, split between potentially larger moves for some currencies in favour and smaller for others.
NAB targets EUR/USD at 1.12, 1.11, 1.09 and GBP/USD at 1.43, 1.44, and 1.43 by the end of Q2, Q3, and Q4 respectively.
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AUD/USD: Wave-5 In Full Swing: Levels & Targets
AUD/USD wave-(5) is now in full swing, notes Nomura.
"Our target zone for wave-(5) is approaching at .7734/7892. They are both symmetry targets using different projections," Nomura projects.
If long intraday, Nomura tips the stops at 0.7615.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Neutral: Bullish if daily close above 1.1400.
The break above the major 1.1375 resistance bodes well for EUR. We have been reluctant in turning bullish but a daily close above 1.1400 would be a strong indication that EUR is ready to move towards and possibly beyond last October’s high of 1.1495.
Overall, this pair is expected to remain underpinned unless there is a move back below 1.1270.
GBP/USD: Neutral: Increasing upside risk.
While the undertone for GBP remains positive as long as the 1.4250 support is intact, this pair has to break clearly above 1.4470 and more importantly the month-to-date high of 1.4514 before a mid-term rally can be expected.
Until then, we would prefer to hold a neutral view even though there is no denying the increasing upside risk.
AUD/USD: Bullish: Upside potential limited to 0.7740.
We just turned bullish yesterday and there is no change to the view. As highlighted, the upside potential appears to be limited to 0.7740 (the next significant resistance is at 0.7850). There is no change to the stop-loss at 0.7550 but 0.7600 is already a strong support.
NZD/USD: Bullish: Target 0.7000.
Similar to AUD/USD, we turned bullish NZD yesterday with a target at 0.7000. There is no reason to change our view at this stage.
USD/JPY: Neutral: In a broad 111.50/113.50 range now.
There is no change to the neutral view and we continue to expect USD to trade in a broad 111.50/113.50 range for now.
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